Global banking sector hits record profits in 2014, but sees margins erode: McKinsey

THE global banking industry, which earned a record US$1 trillion last year thanks to Chinese lenders, will likely have revenue growth continue at a pace of about 3 per cent annually over the next few years - a growth closely aligned to global gross domestic product, said a McKinsey report on Wednesday.

But this comes as margins will continue to erode, the consultancy added. A review of the top 500 banks globally showed a decline of 185 basis points in margins last year, due to a combination of low interest rates, stronger competition, and disruption from fintechs.

This margin erosion can be balanced "to a degree" by improvements in operating costs, McKinsey noted, adding that capital has been largely replenished. Return on equity is expected to continue tracking between 8 per cent and 10 per cent annually, it said.

"After years of upheaval, global banking has settled into a new reality, characterised by stable returns and strong profits, but slow growth," explained McKinsey. "As digitisation accelerates, banks will be in a battle for the customer that will define the industry for the next 10 years."